Contrary to popular belief and what your parents told you when you wanted something, it is perfectly possible to ‘grow money’.
We do it all the time!
OK, not on ‘trees’ but in lots of different ways.
We can ‘plant’ money and watch it grow.
We can grow money by turning it from one thing into another.
We can ‘make’ money by managing and nurturing it.
But what is this stuff that’s so important to us that we call ‘money’?
The first thing to understand is that it doesn’t exist. There is no such ‘thing’ as money.
“But I have these notes in my wallet, that’s money!”
Look carefully at your £5 note. In very small print are the words “I promise to pay the bearer on demand the sum of 5 pounds” signed by the Chief Cashier of the Bank of England.
On US Banknotes, or more precisely ‘Federal Reserve Notes’, it says “This note is legal tender for all debts public and private” and it’s signed by the Treasurer of the United States.
Banknotes are ‘promisory notes’, guarantees that a certain amount will be paid on their surrender to the Bank by which it was issued.
And it’s the same with coins which are simply tokens representing a certain sum.
Originally coins were made of gold or silver but if you take a US 1 dollar bill to the US Treasury they are not going to give you a silver dollar in exchange and neither will the Bank of England give you 5 lbs of silver for your five pound note – despite the promise!
The ‘real money’ that we carry around is simple a means of exchange, a way that we can get around the complexities of obtaining the things we desire or need in exchange for the things we have.
Money is like a catalyst in chemical terms – a substance that facilitates a change of state but is not changed itself in the process.
Using money, you and I can change one thing into another. We ‘sell’ what we have’ and ‘buy’ what we need or desire.
But the tangible ‘money’ in your pocket isn’t ‘real’ money, only a representation, just as the ‘money’ you see in your bank account on screen isn’t ‘real’ either – it’s only a number.
The money that goes into your bank isn’t actually there in any physical form – it’s only a tally of the amount of ‘exchange ability’ you have available.
There is no pot of gold in the bank vault with your name on it.
Your ‘money’ and the fact that it is yours is encrypted in the Bank’s systems, and it’s the same with any money that you use via a credit card.
In a way it’s all ‘crypto currency’ just like Bitcoin and other ‘alternative’ currencies that are not controlled by government institutions.
There is no real difference between the money on your credit card, the money in your bank, and money in your investments including ‘crypto’ currency.
None of it actually exists in tangible form.
Sadly, the levels of encryption and security are not good. Most UK banks are F rated with the highest at D+, Amex has a C+ rating and the HMRC and UK government systems are D-.
(These are measured on an independent analysis of overall system and website security.)
But what about ‘growing’ money?
Here’s the thing – money never changes in value itself but what we can exchange it for does.
It’s called the law of supply and demand.
When there is a ‘shortage’ of something, and the demand is high you and I need more money to acquire it as it increases in ‘value’ – and the reverse is true.
We grow or ‘make’ money by buying something that we believe will increase in value as the demand increases and then sell it when the demand is high – although we have to get the timing right!
It’s a very simple concept that depends on belief. You and I invest our belief in something and purchase it, we then hold on to it for as long as our belief continues that the demand will continue to rise.
We are doing this all the time – even when we may not be aware of it.
The money in our bank, in our insurance policies and in our pension funds is being ‘invested’ by the managers of those organisations all the time.
They use ‘our’ money to grow their funds and in the case of a pension the amount that we will be paid when the pension matures.
Money is being grown by careful management and used to purchase shares in companies, stocks and bonds, commodities and sometimes other currencies.
You and I can buy something which we see to be appreciating in value, and then sell it later for a greater amount of money than we purchased it. Examples are antiques, art, property, and precious metals like gold.
Trading in different ‘currencies’ also falls into this category although it’s more of a short-term day to day management process
So long as prices are rising, and we don’t over-react to minor fluctuations these work well and the same applies to planting your money to watch it grow.
This is a bit more unconventional and some would say has a higher risk. It’s all about ‘start-ups’.
There are two forms – companies and currencies.
Those who invested in companies like Microsoft, Amazon, Google and Facebook saw no return for several years, than all of a sudden, like the tiny bamboo shoot that takes seven years before it suddenly grows 8 feet tall, there was massive growth.
Of course, there were a lot of other ‘dot-come’ enterprises that didn’t make it but those who planted their money seeds in the right place saw the reward.
Now we have something similar going on with alternative currencies. They are called ‘crypto’ currencies because in the same way as ‘normal’ currencies they hold the records of who has invested what in highly encrypted systems – usually with much better ratings than other financial institutions (Bitcoin is C+, Dacxi, the highest, is A+).
It’s the same principle as the company start-ups. Pick one you believe in (or a bundle of them) and invest in it. No-one really knows what the future holds here but the expectation is that the gestation period before massive growth will be much shorter..
Of course, like any other investment there will be fluctuation and the option is always to get out or ride out, but there’s no real doubt that this sector will grow and maybe eventually replace conventional currencies.
The thing is that conventional, ‘real’, ‘hard’ currencies are controlled by governments and to some extent by large corporations moving their operations around the globe – alternative currencies are not.
But none of it is real.
All money ever was and ever will be is tokens, promises to pay.
It allows us to convert one form of energy into another – work into food for example – but without the concept of money life would be so much more complicated!